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Private Equity Funds in Market Targeting Natural Resources Opportunities - October 2013

by Christopher Hardy

  • 07 Oct 2013
  • PE

Preqin’s Funds in Market shows there are currently 39 funds on the fundraising trail targeting investments in natural resources. These funds are cumulatively seeking to raise just under $22bn in capital commitments and so far, 11 of the funds have held interim closes, translating into over $5bn having been secured.

The natural resources fundraising space is diverse; funds can range from focusing on agriculture investments to oil & gas opportunities. However, it is the latter that dominates the market, with 18 funds stating oil & gas as part of their wider natural resources focus. This is compared to eight funds that target agriculture, and the same number that focus on mining. The interest in oil and gas investments has always been strong as it is an area that can see large capital appreciations and strong cash flows. Interest in the industry has been particularly resilient in recent years with the emergence of new extraction techniques such as hydraulic fracturing or ‘fracking’. The process makes it easier to extract resources that were previously unavailable and hence, has garnered interest from the private equity firms investing in companies taking advantage of these techniques. However, concerns surrounding the sustainability and safety of the practice have led to several governments starting to ban or limit the use of fracking, thus creating some barriers to private equity investments into this opportunity. Notably, the debate surrounded fracking has been the fiercest throughout Canada and the US.

Out of the 18 oil and gas-focused funds in market, 13 target North American investments as part of an exclusive or wider geographic focus. These 13 funds are targeting a cumulative figure just shy of $10bn, compared to just over $12bn targeted by oil & gas-focused funds in market in total. This figure represents 81% of the total capital targeted and thus shows the importance of North America to oil and gas markets.

Regarding the whole natural resources industry, the capital targeted by the top five funds in market is also a large proportion of the total, standing at $10.5bn, or just under 50%. By far the largest fund currently in market is the First Reserve Fund XIII which is targeting $5bn. The vehicle focuses on investments in companies that offer a wide range of global natural resources opportunities, including oil & gas, renewable energy, mining and power. The fund is in fact a scale-down for the fund manager, First Reserve Corporation, which closed a fund just under $9bn in 2009. The three next largest funds in market are all targeting $1.5bn and consist of Carlyle International Energy Partners I, KKR Energy Income & Growth Fund I and Reservoir Resource Partners. All three of these funds represent diversification from the firms’ usual buyout strategy into the natural resources space with Carlyle and KKR funds focusing on oil and gas development and exploration investments and Reservoir Resource Partners focusing on power sectors.

The fifth largest fund in market in the industry is Crimson Ant Natural Resources Fund, which is a first-time fund for natural resources-specific fund manager Crimson Ant Investment Management. The fund is targeting $1bn to invest on a global basis in more energy focused opportunities.

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